patrick.net

Dipanjan, thanks for the information about various Indian cities. I always believe that India has a lot of opportunities but I never possess the knowlege about the details.

East Bay Renter, do not lose interest. We can talk about the advantages (intangibles!) of renting.

Peter P,

I agree with your "alright to buy" post, but it seems to contradict your other statements about a huge correction coming soon. Do you really believe in this imminent cataclysmic correction?

Ultimately, when people reach a certain stage in their lives they want to settle down, buy a house, and maybe have kids. It’s hard to delay these things.

Face, this is exactly the stage of life where my wife and I are at right now. However, I disagree with the "logic" that says I HAVE to "own" (whatever that means these days) in order to have kids and "settle down". Heck, I grew up mostly in rented homes and yet managed to stay out jail, complete college, and find a good job.

I've noticed a certain elitist/snobbish ring to many of the arguments I hear from BDs (Bubble-Deniers). Many bloggers (not you) even go so far to equate renting with crime/ghettos/projects. Ahh... the myth of the poor, "homeless" renter... "You say you're still renting? I'm sorry, how sad for you...."

What does "buying" with a NAAVLP(tm) have to do with "owning"?? Puhleeazzz.... You're just renting money instead of renting the house. Even worse, you're gambling your "equity" on the hope of never-ending price increases. And, as for "settling down," how many people stay in the same place more than a few years before they move again? We've become a very transient people in the last 60-70 years, and this trend seems to be accelerating.

Again, if I can rent the same place for half of what it costs to "buy" with none of the risk, then where's the benefit to me?

Dipanjan,

I agree that Bangalore isn't the only game in town in India. Similarly, Silicon Valley isn't the only high-tech center in the US. However, I believe that there will ultimately be only very few high-tech centers in India - just like in the US. I don't think the talent and jobs will be spread all over the place - this never happened in any country, and it isn't really feasible. The few high-tech centers will become expensive areas.

I agree with your “alright to buy” post, but it seems to contradict your other statements about a huge correction coming soon. Do you really believe in this imminent cataclysmic correction?

I believe in the consumption model of housing. I do not see homes as investments and I object to purchasing decisions based on expected appreciation.

An implication of my "alright to buy" post is that the concept of "starter homes" will have to go away. One can no longer count on appreciation to build equity for another house. Consequently, one will have to "start" with a house that is going to be adequate for 10-15 years. This is not easy for young couples who plan to have two kids.

Face Reality, how many people will still buy (or can afford to buy) at the current price level if they are convinced that there will be no inflation-adjusted appreciation for the next 10 years?

I have nothing to say if people will still buy.

Any weakness in prices, and people with long commutes will start bidding on houses closer to work. It’s a really tough and resilient market here.

I believe that any crash in the Bay Area will be preceded by a crash in the outlying areas.

I think our disagreement comes only from a single assumption: whether people buy mostly for the reason of expected appreciation.

High density housing close to transportation hub will solve the problem. We can limit the number of parking spaces to soften the traffic problem caused by higher population density.

I think our disagreement comes only from a single assumption: whether people buy mostly for the reason of expected appreciation.

Plus, a few other assumptions:

That the BA is so "special" (those PIBs - Positive IntangiBles) that an unlimited stream of people will continue to pay any price --no matter how outrageously out-of-sync with rents & earnings-- in order to "buy" here.

That there is no end to the amount of $$ mortgage lenders will be willing shovel at almost anyone, so they can participate in the forever-escalating bidding wars. This will go regardless of whether people default en masse, rates rise, or a recession hits.

That the PIBs of home-"ownership" always outweigh the NIBs (Negative IntangiBles), and that renters can never have the same or better qualilty of life as owners.

By the way, who’s paying for the teachers, firefighters, and vets? Who sponsors the arts? Do you know how the great museums, concerts halls, and opera houses of this country were built? Guess what, it was people who made a lot of money who made this happen.

Gee, Face, it can't be CA home-"owners", can it? I thought Prop 13 outlawed evil property tax forever? (yes, I'm being sarcastic).

I also wish housing was more affordable as I said many times before, but I don’t hear any concrete ideas for making it happen other than Peter P’s high-density housing suggestion.

Are you asking this independent of the assumption we're currently in a housing bubble? In other words, are you asking how to make CA housing more affordable in general/at any time, or are you asking how could we accelerate deflation of our current bubble?

Jack, it's actually down to 12% overall, according to a just-released report from CAR: car.org/index.php?id=MzUyMDY=

C.A.R. HOUSING AFFORDABILITY INDEX
San Fran. Bay Area 12 (composite index)

BA Counties:

Alameda 11
Contra Costa 10
Marin 12
Merced 14
San Francisco 8
Santa Clara 18
San Mateo 11
Sonoma 7

Face Reality, you may be right about density. Let me rethink that.

Perhaps we should encourage telecommuting. This should spread housing needs across a larger area. This will also lessen the load on transportationg system.

Actually, higher density housing may be unpopular. But it is quite politically tempting. By the time an area is built-out, there will be pressure from megabucks developers to re-develop older homes. Additional tax revenue from higher density will be a very good think for local governments.

Just thinking about the old cliche that immigrant families “double up” or ‘triple up’ to rent or buy a house sometimes...

Now, families can rent their own place or "double up" to buy a house...

I wonder what they will choose.

Face,

Apart from your "bubble deflation" prediction, I totally agree with your other statements (which is why I asked "independent of the assumption we’re currently in a housing bubble?"). Even if you subtracted the impact of loose lending/GSE growth/low interest rates/spculation from last 5 years or so, CA has consistently been significantly more expensive relative to other regions for a long time.

Yes, I think Prop. 13 and NIMBY laws/regulations (such as Urban Growth Boundaries) are a big cause of this and should be repealed. Frankly, I don't how to go about it, though. People seem to love UGBs because they're always touted as "pro-environment/anti-growth". Contra Costa just recently passed an even more restrictive UGB during last year's elections. And good luck overturning Prop. 13 --that's the homeowners' Sacred Cow of California. Remember what happened when Warren Buffet made the barest metnion of it right after the recall?

Most voters just can't seem to make the connection between these regulations/policies and high housing prices. Either that, or existing NIMBY homeowners aren't willing to sacrifce what they view as a competitive advantage over new buyers, even if it will benefit everyone. Not sure how to combat that.

I always laugh at pro-environment/anti-growth propositions. How about an anti-growth law in population too? Perhaps we should all be required to obtain a permit to bear child? (I certainly do not want this.)

Anti-growth activists are hypocrites that care more about home values than the welfare of the environment.

LowIncome, are you in the South Bay? The rent and income ratio is quite out of whack here.

If buying is well justified by fundamentals, why care about whether there is a housing bubble or not?

"Looks like they are choosing buying at the moment."

My point is their choice does not indicate shortage a housing because there is another alternative.

On the subject of NIMBY/anti-housing regulations, here's a good article from CBIA (California Building Industry Association). Basically, it argues that each new CA house costs builders $100,000 in taxes, fees & permits before they even break ground --way more than in other states.

"Cost Matters: How Government is Taxing Homeownership"
http://tinyurl.com/98dxe

Thats the problem. Repealing prob 13 only benefits new buyers. Three years later, the “new buyer” is now happily on the other side of the vote.

See, this line of thinking is highly consistent with a zero-sum society. :)

(Jack, I am not pointing finger at you. We are good friends, right?)

Basically, it argues that each new CA house costs builders $100,000 in taxes, fees & permits before they even break ground.

HARM, do not buy into that type of argument so easily. They are basically just saying, "hey, it is not my fault, blame the government for high prices."

However, California has always been anti-growth. There is nothing new. Why the sudden run-up in price?

Then why arent they renting?

Because they are seriously misinformed.

If they can afford the house without resorting to drastic measures, it is arguable that they are buying for the intangibles. But if they have to make huge sacrifices to own...

I always laugh at pro-environment/anti-growth propositions. How about an anti-growth law in population too? Perhaps we should all be required to obtain a permit to bear child? (I certainly do not want this.)

Hey, Peter, don't be too hasty - Californian voters (and politicians) have never met a stupid law/proposition they didn't like. Child-bearing permits... Hmmm... I think I like the sound of that. Reduce demand and (more importantly) increase local tax revenue --sounds like a Plan! ;-)

Anti-growth activists are hypocrites that care more about home values than the welfare of the environment.

Yeah, too bad we can't pass a law prohibiting selfishness & hypocrisy. But the downside is, we'd have so many people in jail, who would be left to work?

My point is that California is becoming socialist... or perhaps it has been socialist for decades.

Of course I think that "child bearing permit" should stay within the realm of science fictions. :)

Having been a teacher, "child bearing permits" sometimes make sense. :D

HARM, do not buy into that type of argument so easily. They are basically just saying, “hey, it is not my fault, blame the government for high prices.”

However, California has always been anti-growth. There is nothing new. Why the sudden run-up in price?

Not arguing otherwise, Peter. I was just contributing to the sub-thread of why CA housing is relatively expensive INDEPENDENT of the effects of the current bubble. Face has a point --we have to be anti-housing regulation capital of the U.S.

"One big intangible for immigrants might be that they get pushed around alot by landlords. So owning ends all that."

Why would that be the case? What kind of places are they renting?

I believe that some understanding of the law (and willingness to hire lawyers) is probably more helpful.

Owning does not end all hassles. It merely shifts them. Kind of like hedging. :)

Face Reality, I do realize that there are supply-side issues, which explain high prices in California. However, they do not explain why prices suddenly took a departure from its relationship with inflation and rental prices a few years ago.

if it means stopping a freeway to Bodega Bay!

I would go to Bodega Bay more often if there is a freeway. I have real issues driving on two-lane highways, which have much higher fatality risks. (Drivers seem to ignore double-yellow lines, and I do not drive an Escalade.)

Having been a teacher, “child bearing permits” sometimes make sense.

I know what you are talking about. :)

Jack, I have nothing against owning. However, one should buy only when the price is right and the time is right. There is no academic answer to what is right, but one must develop a feel in order to have any success.

You question now is "should he have rented instead of owned?"

Hindsight is always 20/20, if not 20/15.

I just wanted to add my two cents for those of us who live outside the BA. (I believe it was Face Reality who wanted to know why someone who didn't live in the BA would be interested in the discussion).

I personnally believe that the Sacto region is going to be hugely affected by whatever happens in the BA. If there is a softening of the BA market, I do think that many commuters who live out here are going to want to move closer in. But, I do think it would take a dip in prices to make this happen. If our prices slip first, then people out here may not be able to afford a move back to the BA. I'm not leaning on statistics to support my thinking, I just personnally know a lot of commuters who are tired of leaving for work in the dark, and returning home in the dark. The fact that there are so many commuters does make an argument that people really do see ownership as more important than free time, and other intangibles that might keep them renting in the BA. The question is, in the long run, are the sacrifices worth it?

Having been a teacher, “child bearing permits” sometimes make sense.

I know what you are talking about. :-)

I'll "third" that! I worked as a H.S. teacher in L.A. for 3 1/2 years. Some of the family/home life situations of the kids were pretty horrendous.

Face Reality, why are people using NAAVLPs in the Bay Area if there is so much wealth to be poured into real estates. Shouldn't they be buying homes with cash?

Harm
High school in L.A. Yikes.

They want to make it hard and scary for you to get there so you will decide to go to Lost Vegas instead! And look at the pristene desert full of zero lot lines.

Lost Vegas has much better food than Bodega Bay. It is very hot though. Hotter than Sacramento.

Also, Face Reality, when wealthy people invest in real estate, they usually do not flood the rental market with more units. Who wants to deal with us damned dirty renters? :)

Jack, you have no kids? Are you talking about kids kids or goat kids? :)